COMPUTERIZED LOAN ORIGINATION SYSTEMS - AN INDUSTRY CASE-STUDY OF THEELECTRONIC MARKETS HYPOTHESIS

Much has been written in recent years about the changes in corporate s trategies and industry structures associated with electronic coordinat ion of market activities. This paper considers the advent of electroni c market coordination in the home mortgage industry, focusing on Compu terized Loan Origination (CLO) systems. Case studies of five CLOs (Fir st Boston's Shelternet, PRC's LoanExpress, American Financial Network' s Rennie Mae, Prudential's CLOS, and Citicorp's Mortgage Power Plus) r eveal a range of system functionalities. Predictions from the Electron ic Markets Hypothesis (EMH) are tested against the empirical results o f the five case studies. As suggested by the EMH, financial intermedia ries have been threatened by the introduction of CLOS, and in some cas es opposition has been mounted against the systems. On the other hand, despite the availability of the technology and mortgages' seemingly f avorable characteristics as an electronically mediated market product, the industry has not been fundamentally changed by the introduction o f these systems, despite more than a decade of experience with them. O f the two case studies that could be characterized as electronic marke ts, neither continues to exist in that form today. And the system with the largest dollar volume of mortgages of the five is best characteri zed as an electronic hierarchy. These results suggest that either the full results predicted by the EMH require a longer gestation period or that the underlying hypothesis will require augmentation in order to fully explain the results in the home mortgage market.